Monday, August 08, 2016

Living in the past, Trump reincarnates Reagan trickle down plan as most forward looking policy for America

Trump speaking in Detroit

Today, Donald Trump gave some specifics about his Tax plan, among other subjects, if he were elected President. I review here what the major features of his plan includes.

Trump believes that taxes are the biggest differentiation between him and Hillary. He repeated his campaign's rhetoric and false claim that Hillary says she will increase taxes on the middle class.

Overall, his approach to taxes is to reduce them for most people, but especially for the wealthy and Corporate America. Although he stated that he is the future thinking of American taxes, his tax plan is to reactivate the 1980's Reagan trickle down economic policy, which many argue does not increase the number of jobs, or give wage increases to workers. What it does do is pad the bank accounts of the extremely rich. He spoke nothing about minimum wage increases.

The "trickle down" policy is cited as one of the major reasons for the redistribution of wealth from the middle class to the rich which caused today's income inequality. Most of his recommendations would reduce revenue to run the Federal government and likely increase the deficit unless severe cuts are made to the social safety net or other programs thought unworthy by a Republican Congress.

For example, Donald Trump admits that the tax code is extremely complicated but does not mention how the tax code would change, other than by reducing the number of tax brackets from seven down to three. The three brackets would be 12%, 25% and 33%.

Donald believes that taxes and regulation on Corporate America have had the most adverse impact on reducing the GDP. Further, he believes that reducing the already highest business tax rate of all western countries from 35% to 15% will improve the economy and spur on business investments and job growth. The problem with that statement is that 2/3 of all businesses pay no taxes and those that do, have their taxes reduced through exemptions, deductions and off-shore tax havens to about 12.6%. If reduction in Corporate taxes had any long term impact on increasing jobs or increasing wages, we should have already seen it. We have not.

Not stopping there to improve the lives of the wealthy, Mr. Trump also advocates elimination of estate taxes. This was received by a large round of applause from the audience, who apparently either are very rich themselves or do not understand that estate taxes are not paid by any family having less than a $10.8 million estate.

Mr. Trump indicates that the rich will pay their fair share of taxes, but this is very subjective. Mr. Trump did not get into details on what constitutes a fair share. For example, if a Corporate CEO who enjoys a $15 million annual income shelters $14 million of it in offshore tax shelters, does he pay tax on the $15 million or $1 million? Even if he finds legal ways to protect most of that income, what constitutes a fair share?

One tax advantage offered that could favor working women is elimination of all child care expenses from taxes. Again no specifics but on the surface, it appears that provided you have a job and a child in day care, your child care costs might be deductible from your gross income and not be subject to a tax. The average cost of child care for working women is about $200 per week, so this has the potential to save over $10,000 from being taxed. We'll have to see how a Republican Congress would find this proposal, but if history is any indicator, Republicans are not very generous appropriating money for such social reasons.

For example, on the subject of equal pay, if Republicans in Congress passed equal pay legislation, women's wages would be increased by about 30%, potentially increasing the take home pay by much more than $10,000. That has been rejected by Republicans more than once. My guess is that Trump's child care deduction will be solidly rejected if Republicans stay in control of Congress.

Donald indicates that more about his tax policies can be found on his website.